Reliance Wholesale Ltd v AM2PM Feltham Ltd

This appeal concerned only the question of costs arising from a winding-up petition. The court applied the established principles governing costs where a petition debt is paid before the hearing (principles derived from Re Nowmost Co Ltd and related authorities) and considered whether the company had discharged the onus upon it to displace the ordinary order that a company which pays the petition debt should pay the petitioner's costs.

The judge accepted correspondence showing the company paid the principal sum under protest and reserved the right to seek recovery. On the materials before him the judge found that only part of the petition debt (£6,000) lacked a bona fide defence on substantial grounds; the remainder (c.£33,059.26) might have been susceptible to a defence based on payment on behalf of a related company (Premier). Because the chief registrar had not been provided with sufficient material to make a fair judicial decision and had therefore wrongly made no order as to costs, the appeal was allowed in part and the company ordered to pay the petitioner's costs, to be detailed assessed if not agreed.

Background and parties: The petitioner, Reliance Wholesale Limited, presented a winding-up petition against AM2PM Feltham Limited for non-payment of an alleged loan of c.£39,059.26. Notice was given and the petition was due to be heard on 5 December 2018. The company paid the claimed sum to the petitioner's solicitors on 3 December 2018. At the hearing before the chief registrar on 5 December 2018 the petition was dismissed by agreement but no order was made as to costs. The petitioner appealed the costs decision.

Procedural posture: Permission to appeal was granted by Falk J. The appeal concerned only the question of costs. The court admitted correspondence between the parties that had not been before the chief registrar.

Material facts and correspondence: The company's correspondence of 7 November 2018 argued that the earlier payment of c.£39,059.26 had been made on behalf of a related third company (Premier Exports London Limited) and therefore the whole sum was not a loan to the company; however the material only plausibly accounted for c.£33,059.26 on that basis and left £6,000 unexplained.

By correspondence dated 30 November 2018 the company stated it was prepared to pay the alleged debt but expressly did so under severe protest, without admission of liability and reserving rights to recover the payment. The petitioner sought recovery of the petition debt plus costs (total c.£44,580.26). The company asked for a breakdown of costs and stated costs could be assessed if not agreed. The payment was made on 3 December 2018 and the petitioner provided a costs breakdown and intended to seek dismissal with costs to be assessed.

Issues framed: (i) Whether the chief registrar was correct to make no order as to costs when the petition had been dismissed after payment of the debt; (ii) whether the company had discharged the onus of demonstrating a bona fide dispute on substantial grounds so as to displace the usual order that the company pay the petitioner's costs; (iii) whether payment under protest precluded an inference that the debt was admitted.

Court's reasoning: The judge reviewed the authorities including Re Nowmost Co Ltd, Fitzgerald & Law v Ralph, Re Blackman and a Scottish sheriff court decision. He recorded the fivefold summary of Nowmost principles emphasizing that the onus lies on the company to produce material to displace the ordinary costs order, and that the court should adopt a pragmatic approach but require evidence for disputed assertions. The judge accepted that the chief registrar was presented with competing arguments and lacked documents, but concluded that the registrar's straightforward refusal to make any costs order was wrong in principle because he had not made a true judicial determination on the disputed issue. Applying the material before him, and giving the company the benefit of the doubt on the larger part of the sum, the judge concluded there was no bona fide defence on substantial grounds to the unexplained £6,000. The petition was therefore a justified step at least to that extent and the ordinary order should follow.

Relief and disposition: The court allowed the appeal in part, set aside the registrar's no-order on costs and ordered that the company pay the petitioner's costs of the petition. The judge left open whether to carry out a summary assessment and otherwise directed the costs to be subject to detailed assessment if not agreed.

The appeal was allowed in part. The judge held that the chief registrar was wrong in principle to make no order as to costs when he had insufficient material before him to make a judicial determination. Applying the correspondence and other material now before the court, the judge found the company had not shown a bona fide dispute on substantial grounds in relation to £6,000 of the petition debt. The ordinary order therefore applied: the company must pay the petitioner's costs, to be assessed if not agreed.

Order of Chief Registrar Briggs of 5 December 2018 dismissing the petition but making no order as to costs; permission to appeal granted by Falk J on 19 February 2019; appeal heard in the High Court, Chancery Division (Morgan J) resulting in this judgment [2019] EWHC 1079 (Ch).